U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
________________________________
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 0-3743
__________________________________
CONTINENTAL INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
Georgia 58-0705228
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10254 Miller Road, Dallas, Texas 75238
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:(214)691-1100
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
As of August 14, 1997, the registrant had outstanding 11,952,008 shares
of Common Stock.
<PAGE>
Continental Investment Corporation and Subsidiaries
FORM 10-QSB REPORT INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 .................................... 3
Consolidated Statements of Operations
For the periods ended June 30, 1997 and 1996 ............. 5
Consolidated Statement of Stockholders' Equity
Six months ended June 30, 1997 ........................... 6
Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1996 .................. 7
Notes to Consolidated Financial Statements ................. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........ 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ..................... 13
Signatures ..................................................... 13
<PAGE>
PART I. FINANCIAL INFORMATION
- - -------------------------------
Item 1. Financial Statements.
------------------------------
Continental Investment Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
------------ ------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 2,296,640 $ 841,586
Notes receivable 1,954,097 2,380,000
Accounts receivable 33,930 23,679
Inventories 50,532 48,613
Accrued interest receivable -0- 61,142
Prepaid expenses 12,994 33,967
Landfill acquisition down payment 250,000 -0 -
------------ ------------
Total current assets 4,598,193 3,388,987
PROPERTY AND EQUIPMENT
Land, at cost 8,564,582 8,564,582
Fixtures and equipment, net
of accumulated depreciation of
$40,630 and $29,960 36,570 41,813
Total property and equipment 8,601,152 8,606,395
------------ ------------
INTANGIBLES, net of accumulated
amortization of $35,000 and $17,361 -0- 17,639
------------ ------------
Total assets $13,199,345 $12,013,021
============ ============
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Continued)
June 30, December 31,
1997 1996
------------ ------------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 97,668 $ 119,496
Accrued payable 128,000 46,356
Current portion of long-term
note payable -0- 230,000
------------ ------------
Total current liabilities 225,668 395,852
LONG-TERM LIABILITIES
Note payable 711,519 920,000
Accrued interest payable 11,760 -0-
Deferred income taxes 747,000 747,000
------------ ------------
Total long-term liabilities 1,470,279 1,667,000
------------ ------------
Total liabilities 1,695,947 2,062,852
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value;
1,000,000 shares authorized; no
shares issued or outstanding -0- -0-
Common stock, $0.50 par value;
25,000,000 shares authorized;
11,782,008 shares issued and
outstanding at June 30, 1997;
11,313,008 shares issued and
outstanding at December 31, 1996 $ 3,017,004 $ 2,782,504
Additional contributed capital 12,581,064 10,607,444
Accumulated deficit (4,094,670) (3,439,779)
------------ ------------
Total stockholders' equity 11,503,398 9,950,169
------------ ------------
Total liabilities and
stockholders' equity $13,199,345 $12,013,021
============ ============
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
1997 1996 1997 1996
Revenues $ 202,768 $ 214,898 $ 406,819 $ 414,237
Costs and Expenses
Cost of revenues 79,424 71,339 158,153 153,325
Selling, general and
administrative expenses 572,068 459,306 1,095,671 729,462
---------- ---------- ----------- ----------
Operating loss (448,724) (315,747) (847,005) (468,550)
Other Income (Expense)
Interest income 61,305 -0- 119,070 -0-
Interest expense (12,473) (3,145) (30,825) (3,872)
Miscellaneous income 64,729 -0- 103,869 -0-
---------- ---------- ----------- ----------
Loss before income
taxes (335,163) (318,892) (654,891) (472,422)
Income Tax Expense -0- -0- -0- -0-
---------- ---------- ----------- ----------
NET LOSS $(335,163) $(318,892) $ (654,891) $(472,422)
========== ========== =========== ==========
Per Share Data
Net loss per common share $ (0.03) $ (0.03) $ (0.06) $ (0.06)
Weighted average number
of common and common
equivalent shares
outstanding 11,443,393 9,933,660 11,378,560 9,800,700
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six months ended June 30, 1997
(Unaudited)
<CAPTION>
Common stock Common Additional Treasury stock
------------------------ stock contributed --------------- Accumulated
Shares Par value subscribed Capital Shares Amount deficit Total
----------- ----------- ---------- ------------ ------ ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1996 11,313,008 $2,782,504 -0- $10,607,444 -0- -0- $(3,439,779) $ 9,950,169
Exercise of
warrants 505,000 252,500 -0- 2,147,500 -0- -0- -0- 2,400,000
Issuance of
stock for
services (36,000) (18,000) -0- (173,880) -0- -0- -0- (191,880)
Net loss -0- -0- -0- -0- -0- -0- (654,891) (654,891)
----------- ----------- ---------- ------------ ------ ------ ------------ ------------
Balance,
June 30,
1997 11,782,008 $3,017,004 -0- $12,581,064 -0- -0- $(4,094,670) $11,503,398
=========== =========== ========== ============ ====== ====== ============ ============
<FN>
See accompanying notes to unaudited consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Continental Investment Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30
(Unaudited)
1997 1996
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (654,891) $ (472,422)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Amortization/depreciation expense $ 27,569 $ 7,231
Common stock issued for services (191,879) 247,901
Accounts receivable - trade (10,251) (9,433)
Inventories (1,919) (16,599)
Prepaid expenses 20,973 64,042
Accounts payable - trade (21,828) (89,703)
Accrued expenses 81,644 (57,596)
Accrued interest payable 11,760 -0-
Accrued expenses to related parties -0- -0-
Deferred rent -0- (19,775)
----------- -----------
Net cash provided by (used in)
operating activities $ (738,822) $ (346,355)
Cash flows from investing activities:
Purchases of property -0- (568,870)
Capital expenditures (4,687) (2,300)
Paydown of notes receivable 425,903 -0-
Payment of accrued interest receivable 61,142 -0-
Landfill acquisition down payment (250,000) -0-
----------- -----------
Net cash provided by (used in)
investing activities $ 232,358 $ (571,170)
Cash flows from financing activities:
Paydown of liabilities $ (438,482) $ (279,332)
Proceeds from exercise of warrants;
private placement 2,400,000 2,350,000
----------- -----------
Net cash provided by (used in)
financing activities $1,961,518 $2,070,668
Net increase (decrease) in cash 1,455,054 1,153,143
Cash, beginning of period $ 841,586 $ 6,030
Cash, end of period $2,296,640 $1,159,173
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
Continental Investment Corporation and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by the
Company pursuant to the rules and regulations of the U. S. Securities and
Exchange Commission. Certain information and disclosures normally included
in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. In the opinion of management, all adjustments
and disclosures necessary to a fair presentation of these financial
statements have been included. Such adjustments consist of normal recurring
adjustments. This Form 10-QSB Report should be read in conjunction with the
Form 10-KSB Report of Continental Investment Corporation (the "Company" or
"CICG") for the short fiscal year ended December 31, 1996, as filed with the
U. S. Securities and Exchange Commission.
The results of operations for the periods ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the full
year.
NOTE B - NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average number of
outstanding common shares during the period and, if their effect is
dilutive, common stock equivalents consisting of stock options.
NOTE C - NEW ACCOUNTING PRONOUNCEMENT
The FASB has issued Statement of Financing Accounting Standards No. 128,
Earnings Per Share, which is effective for financial statements issued after
December 15, 1997. Early adoption of the new standard is not permitted. The
new standard eliminates primary and fully diluted earnings per share and
requires presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. The adoption of this
new standard is not expected to have a material impact on the disclosure of
earnings per share in the financial statements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
- - -----------------------------------------------------------------------
Results of Operations
---------------------
Six Months Ended June 30, 1997 Compared to
Six Months Ended June 30, 1996
Revenues
During the six months ended June 30, 1997, revenues of the Company were
derived solely from the FIBER-SEAL fabric care and treatment business.
Revenues for the six months ended June 30, 1997 decreased $7,418 (1.79%) to
$406,819 from $414,237 for the six months ended June 30, 1996. The decrease
in revenues was caused by normal periodic business fluctuations. The Company
has made a strategic decision to convert its FIBER-SEAL business from a
licensing mode to a franchising operation by December 31, 1998. Further, the
Company intends to institute a program for the expansion of FIBER-SEAL
operations in all unexploited geographic areas in the U. S. during fiscal
year 1998.
Cost of Revenues
Cost of revenues for the six months ended June 30, 1997 increased $4,828
(3.15%) to $158,153 (representing 38.88% of revenues) from $153,325
(representing 37.01% of revenues) for the six months ended June 30, 1996.
The decreased profit margin and the increase in the cost of revenues were due
to normal periodic variations in the product mix.
Selling, General and Administrative (SG&A) Expenses
Selling, general and administrative (SG&A) expenses for the six months
ended June 30, 1997 increased $366,209 (50.20%) to $1,095,671 from $729,462
for the six months ended June 30, 1996. The increase was due to a variety of
factors including those related to the development and potential use of the
Company's Atlanta property as a waste disposal site (e.g., consulting fees,
increased legal fees, increased public relations expenses, and increased
travel expenses) and additional expenses for FIBER-SEAL related to the
development of a plan to convert from the current licensing method to a
franchise operation, as well as accelerated amortization of intangibles.
Operating Loss
Operating loss for the six months ended June 30, 1997 increased $378,455
(80.77%) to $847,005 from $468,550 for the six months ended June 30, 1996.
This was due to a decrease in revenues for the six months ended June 30, 1997
of $7,418 (a 1.79% decrease) to $406,819 from $414,237 for the six months
ended June 30, 1996, an increase in cost of revenues for the six months ended
June 30, 1997 of $4,828 (a 3.15% increase) to $158,153 from $153,325 for the
six months ended June 30, 1996, and an increase in selling, general and
administrative (SG&A) expenses for the six months ended June 30,1997 of
$366,209 (a 50.20% increase) to $1,095,671 from $729,462 for the six months
ended June 30, 1996.
<PAGE>
Interest Income
Interest income was $119,070 for the six months ended June 30, 1997 as a
result of the Company's improved balance sheet as compared with the six months
ended June 30, 1996 (during which period the Company had no interest income).
Interest Expense
Interest expense for the six months ended June 30, 1997 increased by
$26,973 to $30,825 from $3,872 for the six months ended June 30, 1996. The
increase was due to the note payable issued in connection with the September
1996 acquisition of certain additional FIBER-SEAL assets.
Miscellaneous Income
Miscellaneous income for the six months ended June 30, 1997 of $103,869
consisted of gains on accounts payable that were settled for less than the
sums that had been previously accrued for them. There was no miscellaneous
income for the six months ended June 30, 1996.
Net Loss
The net loss for the six months ended June 30, 1997 increased $182,469
(38.62%) to $654,891 from $472,422 for the six months ended June 30, 1996.
Such increase was primarily due to higher selling, general and administrative
expenses partially offset by increased interest income and miscellaneous
income.
Three Months Ended June 30, 1997 Compared to
Three Months Ended June 30, 1996
Revenues
During the three months ended June 30, 1997, revenues of the Company were
derived solely from the FIBER-SEAL fabric care and treatment business.
Revenues for the quarter ended June 30, 1997 decreased $12,130 (5.64%) to
$202,768 from $214,898 for the quarter ended June 30, 1996. The decrease in
revenues was caused by normal periodic business fluctuations. The Company has
made a strategic decision to convert its FIBER-SEAL business from a licensing
mode to a franchising operation by December 31, 1998. Further, the Company
intends to institute a program for the expansion of FIBER-SEAL operations in
all unexploited geographic areas in the U. S. during fiscal year 1998.
Cost of Revenues
Cost of revenues for the quarter ended June 30, 1997 increased $8,085
(11.33%) to $79,424 (representing 39.17% of revenues) from $71,339
(representing 33.20% of revenues) for the quarter ended June 30, 1996. The
decreased profit margin was due to normal periodic variations in the product
mix.
<PAGE>
Selling, General and Administrative (SG&A) Expenses
Selling, general and administrative (SG&A) expenses for the quarter ended
June 30, 1997 increased $112,762 (24.55%) to $572,068 from $459,306 for the
quarter ended June 30, 1996. The increase was due to a variety of factors
including those related to the development and potential use of the Company's
Atlanta property as a waste disposal site (e.g., consulting fees, increased
legal fees, increased public relations expenses, and increased travel
expenses) and additional expenses for FIBER-SEAL related to the development
of a plan to convert from the current licensing method to a franchise
operation.
Operating Loss
Operating loss for the quarter ended June 30, 1997 increased $132,977
(42.12%) to $448,724 from $315,747 for the quarter ended June 30, 1996. This
was due to the decrease in revenues for the quarter ended June 30, 1997 of
$12,130 (a 5.64% decrease) to $202,768 from $214,898 for the quarter ended
June 30, 1996, an increase in cost of revenues for the quarter ended June 30,
1997 of $8,085 (an 11.33% increase) to $79,424 from $71,339 for the quarter
ended June 30, 1996, and an increase in selling, general and administrative
(SG&A) expenses for the quarter ended June 30, 1997 of $112,762 (a 24.55%
increase) to $572,068 from $459,306 for the quarter ended June 30, 1996.
Interest Income
Interest income was $61,305 for the quarter ended June 30, 1997 as a
result of the Company's improved balance sheet as compared with the quarter
ended June 30, 1996 (during which quarter there was no interest income).
Interest Expense
Interest expense for the quarter ended June 30, 1997 increased by $9,328
to $12,473 from $3,145 for the quarter ended June 30, 1996. The increase was
due to the note payable issued in connection with the September 1996
acquisition of certain additional FIBER-SEAL assets.
Miscellaneous Income
Miscellaneous income for the quarter ended June 30, 1997 of $64,729
consisted of a gain on an account payable that was settled for less than the
sum that had been previously accrued for it. There was no miscellaneous income
for the quarter ended June 30, 1996.
Net Loss
The net loss for the quarter ended June 30, 1997 increased $16,271
(5.10%) to $335,163 from $318,892 for the quarter ended June 30, 1996. Such
increase was primarily due to higher selling, general and administrative
expenses, lower revenues, and higher interest expense, partially offset by
increased interest income and miscellaneous income.
<PAGE>
Liquidity and Capital Resources
-------------------------------
Cash
Cash as of June 30, 1997 was $2,296,640, an increase of $1,455,054 as
compared with the cash position of $841,586 at December 31, 1996. Such
increase was primarily due to the exercise of warrants and the partial
repayment of notes receivable, offset by the six-month net loss, the paying
down of liabilities and a down payment on a landfill that was acquired on
August 5, 1997.
Working Capital
As of June 30, 1997, the Company had working capital of $4,372,525 and a
current ratio of 20.38 to 1 as compared to working capital of $2,993,135 and a
current ratio of 8.56 to 1 at December 31, 1996.
Capital Expenditures
The Company currently has no material commitments for capital
expenditures. The Company expects to continue to explore opportunities to
acquire real property in the future.
Capital Resources
Heretofore, the primary source of capital has been provided by the sale
of shares of common stock of the Company in private sales. In order to satisfy
the liquidity needs of the Company for the following twelve months, the
Company will be primarily dependent upon proceeds from the sale of the
Company's stock, revenues from the constuction and demolition landfill located
in metropolitan Atlanta, Georgia which was acquired by the Company on
August 5, 1997, and revenues generated from the operation of its fabric care
business. The Company has issued shares of its Common Stock from time to time
in the past to satisfy certain obligations, and expects in the future to also
acquire certain services, satisfy indebtedness and/or make acquisitions
utilizing authorized shares of stock of the Company. $2,400,000 of common
stock purchase warrants were exercised during the six months ended June 30,
1997.
PART II - OTHER INFORMATION
- - ---------------------------
Item 6. Exhibits and Reports on Form 8-K.
------------------------------------------
(a) Furnish the exhibits required by Item 601 of Regulation S-B.
None
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONTINENTAL INVESTMENT CORPORATION
(Registrant)
By: /S/ R. Dale Sterritt, Jr.
R. Dale Sterritt, Jr.
Chairman, President and
Chief Executive Officer
(Principal Financial Officer)
By: /S/ G. Michael Lawshe
G. Michael Lawshe
Principal Accounting Officer
Date: August 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,296,640
<SECURITIES> 0
<RECEIVABLES> 1,988,027
<ALLOWANCES> 0
<INVENTORY> 50,532
<CURRENT-ASSETS> 4,598,193
<PP&E> 8,601,152
<DEPRECIATION> 40,630
<TOTAL-ASSETS> 13,199,345
<CURRENT-LIABILITIES> 225,668
<BONDS> 0
0
0
<COMMON> 3,017,004
<OTHER-SE> 11,503,398
<TOTAL-LIABILITY-AND-EQUITY> 13,199,345
<SALES> 406,819
<TOTAL-REVENUES> 406,819
<CGS> 158,153
<TOTAL-COSTS> 1,095,671
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,825
<INCOME-PRETAX> (654,891)
<INCOME-TAX> 0
<INCOME-CONTINUING> (654,891)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (654,891)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
